Economics of Development Exam 2

Income Distribution in Four Countries provides recent data from the World Bank on the distribution of income in four countries. Based on the data, the country with the distribution of income that is closest to equal is (a) Bangladesh (b) El Salvador (c) Mexico (d) Costa Rica

(a) Bangladesh

Implicit assumptions from which theories evolve are known as (a) a paradigm. (b) biases. (c) stylized facts (d) normative economics.

(a) a paradigm.

According to the theory of structural patterns of development, which of the following tends to occur as a country develops? (a) a shift from agriculture to industry and services (b) an increase in the percentage of income spent on food (c) growth of the rural sector (d) a decline in trade as a share of GNP

(a) a shift from agriculture to industry and services

The United Nations and the World Bank use poverty lines that are based on: (a) an absolute poverty measure (b) a relative poverty measure (d) a higher standard of living than what is represented by the U.S. poverty line (d) the same standard of living as the U.S. poverty lne

(a) an absolute poverty measure

According to Kuznets, in the process of development inequality in an economy will normally (a) first rise and then fall. (b) first fall and then rise. (c) remain about the same. (d) show no definite pattern.

(a) first rise and then fall.

When the definition of poverty focuses on relative poverty, a person is in poverty if the household income is: (a) in the bottom 10% of household incomes in the nation (b) insufficient to provide basic food, shelter, medical care, and transportation (c) is less than three time the cost of a basic food plan (d) below $3.10 per day

(a) in the bottom 10% of household incomes in the nation

When a poverty line is based on relative poverty, a household is poor if its income is less than: (a) one-half the median household income in the country (b) three times the cost of a low-cost food plan for the household (c) twice the rent on a low-cost two-bedroom apartment (d) $3 per day per person in the household

(a) one-half the median household income in the country

In the field of economics, the observation that the living standard of a household is more stable than its income, because people think in terms of their long-term earnings as they spend, is known as: (a) permanent income versus current income (b) consumption and inequality of living standards (c) wealth and inequality of purchasing power (d) intergenerational mobility and inequality of opportunity

(a) permanent income versus current income

An income level below which a family is defined to be in poverty is known as the (a) poverty line (b) bottom quintile (c) relative poverty measure (d) Needs-based indicator

(a) poverty line

Which of the following is an assumption of the Lewis two-sector model? (a) surplus labor in the rural sector (b) high unemployment in the urban modern sector (c) rising real urban wages (d) rising marginal product of labor in the rural sector

(a) surplus labor in the rural sector

____ is a stock that is more unequal across households than income, which is a flow. (a) wealth (b) age (c) Permanent Income (d) consumption

(a) wealth

Which of the following is NOT true of the incidence of poverty in the United States? (a) People of color are more likely than others to experience poverty (b) Elderly people are more likely than other age groups to be in poverty (c) Children and single moms are most likely to be in poverty (d) Most people in poverty will spend much of their lives in poverty, but most people will spend some time in poverty during their lifetime

(b) Elderly people are more likely than other age groups to be in poverty

Use the World Bank in Table: Costa Rica Distribution of Income, 1986 and 2016 to determine what happened to the distribution of income in Costa Rica over the time period 1986 to 2016. (a) It remained the same (b) It became more unequal (c) It moved closer to equality (d) it became more equal at the top and bottom and less equal in the middle

(b) It became more unequal

According to diminishing marginal utility, which of the following people would gain the highest marginal benefit from an extra $100 of income? (a) Jokum, a professional football star with an annual household income of $1 million (b) Julia, a single mother of three young children with an annual household income of $18,000 (c) Clive, head of a three-person household with an annual household income of $100,000 (d) Clara, a single person with an annual household income of $20,000

(b) Julia, a single mother of three young children with an annual household income of $18,000

Table: Average Income and Distribution of Income Data provides recent data from the World Bank on average income and the distribution of income in four countries. Based on the data in the table, those in the bottom quintile have the lowest average income in which country? (a) Bangladesh (b) Uganda (c) Sri Lanka (d) Mongolia

(b) Uganda

The linear stages theory of economic growth fails to recognize that increased investment is (a) both a necessary and a sufficient condition. (b) a necessary but not a sufficient condition. (c) a sufficient but not a necessary condition. (d) neither a necessary nor a sufficient condition.

(b) a necessary but not a sufficient condition.

In Gini calculation, the population is divided into _____ groups based on income, and each group is called _____ when data on the distribution of income in a country are presented (a) four; a quarter (b) five; a quintile (c) six; a section (d) three; an income bracket

(b) five; a quintile

The underlying assumption of the Harrod-Domar growth model is that (a) the incremental capital-output ratio is given by k Y/K. (b) growth is mainly determined by capital accumulation. (c) growth can be sustained only if agricultural productivity rises. (d) developing countries save too much and invest too little.

(b) growth is mainly determined by capital accumulation.

The distribution of wealth is ____ the distribution of income (a) the same as (b) more unequal than (c) less unequal than (d) unrelated to

(b) more unequal than

The poverty rate is the: (a) portion of the population who cannot afford to pay rent (b) percent of people whose family income is below the poverty line (c) income level below which a household cannot provide itself with necessities (d) income level based on three times the cost of basic food

(b) percent of people whose family income is below the poverty line

Kuznets' inverted-U hypothesis (a) implies that things must get worse before they get better. (b) suggests that inequality will worsen and then improve as a country grows. (c) suggests that inequality will improve and then worsen as a country grows. (d) points out six characteristics of modern economic growth.

(b) suggests that inequality will worsen and then improve as a country grows.

The Gini coefficient provides a measure of (a) the level of poverty. (b) the level of relative inequality. (c) disguised unemployment. (d) the rate of growth.

(b) the level of relative inequality.

What conclusion can be reached from the following data on income shares? Percentage of Income Received by: Lowest 40% Highest 20%Bangladesh 17.3 45.3Indonesia 14.4 49.4 (a) absolute poverty is more widespread in Bangladesh (b) the size distribution of income is more unequal in Indonesia (c) Bangladesh had adopted a strategy of redistribution with growth (d) growth in Bangladesh is calculated using poverty weights rather than income weights

(b) the size distribution of income is more unequal in Indonesia

About how many girls and women are said to be "missing" in LDCs? (a) 2 million (b) 20 million (c) 100 million (d) 2 billion

(c) 100 million

Assume that a country with a total income of $160,000 has a population of 10 households whose incomes are listed in Table: Income of Households. What percentage of income is earned by the top quintile of the population? (a) 110% (b) 94% (c) 69% (d) 6%

(c) 69%

About what percent of the world's poorest people are female? (a) 30 (b) 50 (c) 70 (d) 90

(c) 70

Data from the World Bank...in Costa Rica for 2 years are presented in the table. Which of the following claims CANNOT be made conclusively for the time period based on the data in the table?

(c) Average income in the bottom quintile was lower in 2016 than it was in 1986

How has the U.S. poverty rate varied over the past 40 years? (a) The rate has had an upward trend (b) The rate has had a downward trend (c) The rate has been relatively stable (d) The rate rose for 20 years and then fell for 20 years

(c) The rate has been relatively stable

Which of the following is a negative result of redistributing income toward equality? (a) Average income rises (b) The poor have a higher standard of living (c) Work incentives are reduced (d) Government expenses fall, and tax revenues rise

(c) Work incentives are reduced

Permanent income is a person's: (a) average income over the past 10 years (b) fixed income in retirement (c) average income over their lifetime (d) estimate of future income based on education and skills

(c) average income over their lifetime

Differences in consumer spending tend to vary _____ differences in income. (a) in proportion to (b) more than (c) less than (d) not at all compared to

(c) less than

The number of people in the world who are absolutely poor is closest to (a) a quarter-billion. (b) a half-billion. (c) one and a half billion. (d) two billion. (e) four billion.

(c) one and a half billion.

If a poverty line is set at a third of the median household income in a country, the poverty line is based on a _____ poverty standard. (a) fixed (b) absolute (c) relative (d) extreme

(c) relative

Which of the following poverty standards uses a measure of relative property? (a) annual income below $8,000 per person in the household (b) the minimum income level that covers basic food, shelter, transportation, and medical care (c) the bottom of 10% of household incomes (d) income of $3.10 per day

(c) the bottom of 10% of household incomes

Assume that a country with a total income of $160,000 has a population of 10 households whose incomes are listed in Table: Income of Households. What percentage of income is earned by the bottom quintile of the population? (a) 8% (b) 4% (c) 3% (d) 2%

(d) 2%

11. Which of the following groups is (are) more likely to be poor? (a) Minorities (b) Indigenous people (c) Women (d) All of the above.

(d) All of the above.

The absolute poverty line (a) decreases as real income grows. (b) shows the average income of the lowest income group. (c) can be measured with the Lorenz curve. (d) None of the above.

(d) None of the above.

Which of the following statements is NOT correct for the United States? (a) Most people who are in poverty will spend much of their lives in poverty (b) Most people will spend some time in poverty in their lifetime (c) Children and single moms are most likely to be in poverty (d) People of color are less likely than others to experience poverty

(d) People of color are less likely than others to experience poverty

What relationship exists between income and well-being in the well-being curve found in the figure? (a) a negative relationship with increasing marginal gains in well-being as income rises (b) a negative relationship with decreasing marginal gains in well-being as income rises (c) a positive relationship with increasing marginal gains in well-being as income rsies (d) a positive relationship with decreasing marginal gains in well-being as income rises

(d) a positive relationship with decreasing marginal gains in well-being as income rises

Which of the following is a criticism of the neoclassical counter-revolution school's approach? (a) markets are not competitive in developing countries. (b) externalities are common in developing countries. (c) inequality may worsen when interventions are removed in developing countries. (d) all of the above.

(d) all of the above.

When there is a high level of intergenerational mobility among the poor in a nation: (a) most of the individuals who are poor remain poor (b) most of the poor have income that are barely below the poverty line (c) the age distribution among the poor is the same as the age distribution in the total population (d) children of poor parents do not remain in poverty when they are adults

(d) children of poor parents do not remain in poverty when they are adults

The logic of income redistribution by the government is that it: (a) reduces total utility in the population but creates opportunities for increasing utility for all persons (b) maintains total utility in the population but equals out the level of utility across people (c) increases total utility in the population by creating more equal incomes with enhanced work incentives (d) increases total utility in the population by placing income where it yields the highest marginal benefit

(d) increases total utility in the population by placing income where it yields the highest marginal benefit

One of the characteristics of the poor is that they are (a) more likely to be employed in the modern industrial sector. (b) more likely to come from small families. (c) more likely to be well educated. (d) more likely to live in a rural area.

(d) more likely to live in a rural area.

Assuming that the Gini coefficient for Egypt is .403 and the Gini coefficient for Australia is .404, it is possible to conclude that both Egypt and Australia have (a) virtually the same number of households in absolute poverty (b) virtually the same percentage of households in absolute poverty (c) virtually the same level of the Human Development Index (d) none of the above

(d) none of the above

Which of the following is an assumption of the Lewis two-sector model? (a) surplus labor in industry. (b) positive marginal product of labor in agriculture. (c) an upward sloping labor supply curve in industry. (d) none of the above.

(d) none of the above.

The poverty gap is the (a) absolute number of people below the international poverty line. (b) percentage of the population below the international poverty line. (c) consumption (measured in dollars) necessary to bring everyone living below the poverty line up to the poverty line. (d) percentage of a country's total consumption necessary to bring everyone in the country living below the poverty line, up to the poverty line.

(d) percentage of a country's total consumption necessary to bring everyone in the country living below the poverty line, up to the poverty line.

Intergenerational mobility is the extent to which: (a) children own more personal transportation vehicles than their parents did (b) the geographic dispersion of families occurs as children pursue economic opportunities (c) the income of children in a given family varies across the children (d) the economic status of children is independent of the economic status of their parents

(d) the economic status of children is independent of the economic status of their parents

The supply curve of labor to industry in the Lewis model is horizontal if there is surplus labor in agriculture. This condition persists as long as (a) the marginal product of labor is less than the average product of labor in agriculture. (b) the marginal product of labor in agriculture is less than the marginal product of labor in industry. (c) there are diminishing returns to labor in agriculture. (d) the marginal product of labor in agriculture is zero.

(d) the marginal product of labor in agriculture is zero.

What is the basis for the income level that the U.S. government uses as the poverty line? (a) the value of low-cost rent, food, transportation, and medical care annually for the family size (b) the income line that separates the bottom quintile from the second quintile of earners (c) the average household income of the lowest-paid 15% of households (d) the value of a low-cost food plan multiplied by three, updated annually for inflation

(d) the value of a low-cost food plan multiplied by three, updated annually for inflation

Across demographic groups in the U.S. population, the poverty rate: (a) tends to be equal (b) varies by race/ethnicity and employment but not by family structure (c) varies by employment and family structure but not by rate/ethnicity (d) varies by race/ethnicity, family structure, and employment

(d) varies by race/ethnicity, family structure, and employment